• Fed orders Customers Bancorp to overhaul risk management and AML practices amid crypto sector scrutiny. No fine was imposed.

  • Customers Bank must enhance due diligence and reporting to address identified deficiencies in digital asset operations.

  • Fed's enforcement highlights a growing focus on crypto compliance; banks must now improve risk management and staff expertise.

The Federal Reserve of the US launched an enforcement action against Customers Bancorp and its subsidiary, Customers Bank. The decision was reached in response to a recent examination that has exposed weaknesses in the risk management and AML policies at the bank. Notably, these issues emerged within the bank’s digital assets business and its tokenized instant payments platform.

https://twitter.com/ReutersBiz/status/1821565818255085623 Mandated Overhaul and Compliance Measures

The bank's risk management for its cryptocurrency business has serious problems that the central bank has found. As a result, the Fed has ordered a thorough revision of the bank's risk management procedures. In order to effectively manage these risks, it also underlined the necessity of increased staff knowledge and resource allocation.

The Fed's action also requires the bank to improve reporting of suspicious behavior and boost its customer due diligence. The goal of these steps is to strengthen the bank's capacity to identify and stop money laundering operations. The failure to comply with these requirements has triggered the Fed's decisive action.

Broader Implications for Crypto Regulation

This enforcement underscores the growing scrutiny of financial institutions involved in digital asset businesses. Moreover, it highlights the regulatory focus on tightening controls and mitigating risks in the cryptocurrency sector. The Fed's decision reflects a broader trend towards stricter regulation of financial firms dealing with crypto assets.

There is no financial penalty associated with the enforcement action. Rather, it mandates that Customers Bancorp rectify the found deficiencies and provide periodic updates to authorities regarding its advancement.

The injunction specifically requires a revamp of its digital assets business's risk management procedures. The bank has to make sure that its employees are properly prepared and trained to manage any new risks that arise in this industry.

The Fed further stated that Customers Bancorp has already begun taking action to address the shortcomings found during the investigation. This proactive approach shows a dedication to enhanced risk management and compliance.

Regulations restricting banks' exposure to the cryptocurrency market have previously been released by the Federal Reserve, the Office of the Comptroller of the Currency, and Federal Deposit Insurance Corp. Last year, the Federal Reserve revamped its digital asset supervision program, focusing on the relationship between conventional banks and cryptocurrencies.

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